The UK government will ban the provision of insurance for ships carrying Russian oil, the Treasury confirmed on Thursday, cutting off access to the vital Lloyd’s of London market for seaborne Russian cargoes.
The move by the UK is a key step in the G7’s attempts to impose a price cap on Russian oil exports as the insurance ban would be waived for countries that sign up to the scheme.
Western governments are attempting to limit Moscow’s oil revenues that help fund its war in Ukraine, but are keen to keep Russian oil flowing in the international market as they fear a large drop in supply would push prices up sharply and harm the world economy.
The British government said the legislation, which will take effect from December 5, would “prevent countries from using the UK’s services to transport Russian oil unless it is purchased at or below the oil price cap set by the . . . G7 and Australia”.
It added that insurance was “one of the key services that enable[d] the movement of oil by sea”, especially so-called protection and indemnity (P&I) insurance, relating to third-party liability. The UK is the global leader in P&I insurance, writing 60 per cent of global cover.
The EU is also introducing a ban on services like insurance for ships transporting Russian oil, and the US is set to follow suit. “At first glance it appears to be largely in line with what the US is proposing with a ban on services effective December 5,” said Leigh Hansson, sanctions partner at law firm Reed Smith.
Any waiver under the price cap would only apply to third-party countries, as it would not supersede the UK, US or EU’s own plans to ban imports of seaborne Russian oil into their territories.
Russia has repeatedly said it will not sell oil to any country implementing the price cap. India and China — the two biggest buyers of Russian oil — have shown no indication that they will go along with the G7’s plan.
“We continue to stand by Ukraine in the face of Putin’s barbaric and illegal invasion,” UK chancellor Jeremy Hunt said.
“We’ve banned the import of Russian oil into the UK and are making good progress on phasing it out completely. This new measure continues to turn the screws on Putin’s war machine, making it even tougher for him to profiteer from his illegal war.”
The legislation that takes effect on December 5 will initially only apply to crude oil exports but from February 5 will be extended to cover refined products like gasoline and diesel, mirroring the EU’s own timeline.
The UK Treasury said it had established a new team in the Office of Financial Sanctions Implementation “to set up the licensing and enforcement system for the oil price cap; engage with industry to ensure readiness for the cap; and monitor the level and impact of the cap on an ongoing basis”.
But the announcement did not make clear the precise mechanism for ensuring insurers knew the price of oil whose shipment they were covering.
Industry figures have been in discussions with the Treasury about a system of “attestations” that would protect insurers from action if they inadvertently carried overpriced oil.
Under the system — which the US has introduced for its oil price sanctions — insurers would have to seek a formal statement from anyone shipping Russian oil that it had all been bought at an appropriate price. The system would exempt insurers from penalties if customers misled them about the price of the oil being transported.
Vitol, the world’s largest independent energy trader, has said it expects Russian oil exports to fall by as much as 1mn barrels a day after December 5 — or almost a fifth of its seaborne exports — as the country may struggle to get enough tankers willing to transport its oil if they cannot access western services.
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